IMF Rethinks Approach to Assessing Risks, Global Linkages

Review recommends actions to strengthen how IMF analyzes risks, economic prospects

Analysis to give more attention to economic and financial interconnections, risks

Outside views played major part in review and planned reforms

The planned reforms reflect the findings of a comprehensive review of the IMF’s policy advice and analysis that was completed by the institution’s Executive Board on October 24, 2011.

The review looks back over a period of exceptional stress and contagion in the global economy. It also responds to criticisms, including by the IMF’s Independent Evaluation Office (IEO), that the IMF had not provided clear warnings about the buildup of vulnerabilities and risks ahead of the crisis.

“The failure to spot the buildup of vulnerabilities in the pre-crisis period is a humbling fact that must … continue to be addressed,” said IMF Managing Director Christine Lagarde in her statement to the Executive Board.

The IMF regularly gives economies at the country, regional, and global level a health check and provides policy advice through a process known as surveillance. The IMF reviews the effectiveness of its surveillance work every three years, but this time is particularly important because of lessons to be learned from the global economic crisis.

Important progress since the crisis

Lagarde also highlighted important progress since the crisis, but added that the IMF could do even better, with “the goal of making surveillance as interconnected as the world economy”.

The IMF has worked intensively over the past three years to address the repercussions of the global financial crisis and also tackle shortcomings in its pre-crisis surveillance framework.

The review highlights progress since 2008, with surveys of important stakeholders—country authorities, civil society, market participants and the media—indicating that IMF advice during the crisis was seen as timely and responsive (see Chart 1). Landmark reforms at the IMF since the crisis have included efforts to modernize its surveillance by sharpening the focus on risks and spillovers and better integrating existing products.

However, the review identified important gaps that still need to be addressed. According to the main report, “surveillance is still seen to be too fragmented, and its risk assessments lacking requisite depth and attention to interconnections and transmission channels” of shocks between economies.

Listening to external voices

The review was based on...